Higher inventories dent Polestar margin progress
A demand dip slows sales for the EV pure play
Sino-Swedish automaker Polestar now expects full-year sales to come in at the bottom of its 60,000-70,000 range after an EV demand slowdown, particularly in the US, eroded its momentum. Resultant higher inventories delivered a blow to Q3 margins and led to a production slowdown.
Gross profit for the quarter was c.$4mn, corresponding to a margin of almost 1pc, “broadly in line with last year”, according to Polestar CFO Johan Malmqvist. “Gross profit in the quarter was impacted by a large inventory impairment charge of $28mn,” Malmqvist admits.
“Demand in certain markets, in particular in the US, was weaker than we anticipated, which led to fewer cars being sold and an inventory build-up,” he continues. And in part owing to high import duties applicable to its Chinese-made cars, “consequently, there was a need to write down the value of the inventory”.
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“We also had an impact from second-hand cars, which have started to come into our inventory in a more meaningful way. Recognising the impact on the profitability of our business, we have taken mitigating actions to temporarily cut production volumes in order to improve the inventory balances,” Malmqvist says.
“We now expect to deliver about 60,000 vehicles for this year as we maintain a disciplined approach to our premium brand positioning against the background of a weakening global consumer demand — particularly affecting the rate of EV adoption. Flowing from lower deliveries for the year and the financial performance to date, in particular inventory impairment charges, we now expect a full-year gross margin around 2pc,” the finance chief summarises.
Stronger end to year
But Q3 was not all doom-and-gloom for the Gothenburg-headquartered challenger brand. The quarter saw record deliveries of 13,976, a growth of 51pc year-on-year. compared to last year. Cumulative deliveries for the first nine months of the year totalled 41,817, up by 37pc from Q1-3’22. compared to the same period last year.
And Q3 revenue increased by 41pc year-on-year to $613mn, driven by that volume growth — as well as by price increases implemented after Q3 last year and more sales of the “significantly upgraded” model year 2024 Polestar 2 sales. “Deliveries of this higher-priced model continue to ramp up and it is receiving great reviews,” says Polestar CEO Thomas Ingenlath.
“We saw improvement in the core business margins during Q3, on the back of the positive mix and as we continue to roll out Polestar 2 model year 2024, alongside reduction in raw material costs,” agrees Malmqvist.
Achieving full-year sales of 60,000 would mean selling more than 18,000 vehicles in Q4, so Polestar foresees the year’s final quarter to be its strongest yet in volumes term, with additional bottom-line impact. “We expect margin progression to strengthen for the remainder of the year,” Malmqvist confirms.
A rebalancing of the shares of private and non-private sales in its volumes is another boon for the firm. “This quarter has reverted to a more normal level of around 60pc fleet sales, 40pc retail, and that has benefited revenue through product variant mix,” Malmqvist reports.
Polestar’s strategic partnership with rental heavyweight Hertz, which saw the latter agree in April 2022 to purchasing up to 65,000 Polestar EVs over a five-year period is “progressing well”. At the end of Q3, Polestar had delivered c.15pc of the 65,000 commitment.
“Fleet is and will remain an important part of our business. Putting aside the Hertz partnership, a very high percentage of our remaining fleet book is corporate car schemes, which attract margins that are more closely aligned with our retail business and provide access to an important pool of target customers for our upcoming product line-up,” says Malmqvist.
The firm will start deliveries of its new Polestar 4 in China in December, with the Polestar 3 following in 2024.